Standard Grain

Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.

Heat Wave Pushes Grains Higher

Corn traded sharply higher overnight after a downside reversal trade on Friday. Forecasters are looking for significantly warmer weather than was advertised late last week while rain expectations are similar. Our lead forecaster looks for a sharp decrease in subsoil moisture levels throughout the Corn Belt during the 7-10 day period unless rains are bigger than expected. The soybean market has not paid attention to weather patterns nearly as much as the corn. Beans traded sharply lower early last night’s session, but have bounced this morning and are currently trading near the high end of the day’s range. Wheat futures are also trading higher this morning. The July Wheat vs. Corn spread topped out at just over $1.00; Corn has gained more than 40 cents on wheat during the last 5 sessions.

Friday’s unemployment data sent equity markets sharply lower. The US economy added only 69,000 new jobs in May while the unemployment rate rose to 8.2%. Macro news has been mostly bearish. Some corn traders have looked at the recent collapse in crude oil prices as a bearish factor for corn usage for ethanol. The recent rally in the US dollar is also bearish for commodities. The key CRB Index made new lows on Friday, now down 18% from its late February highs, as the commodity complex as a remains in a significant downtrend. Concerns over Eurozone debt crisis and Greece in particular remain an extremely relevant issue for our markets. Hedge funds and other money managers withdrew more than $2.3 billion from commodities during the final week of May.

Moving forward, weather will obviously be the key factor around which our day-to-day trade revolves. Feel free to call or email us anytime for updates on the most current weather forecasts. USDA will release Export Inspection this morning at 10am CST and Crop Progress this afternoon at 3pm CST. Remember that corn ratings dropped 5% in the good-excellent category last week. A further decrease this week would be seen as being friendly. The June Crop Production Report will be released next Tuesday, the 12th, at 7:30am CST. This will mark the first key USDA report that will be released during the new open trading hours.

We believe that downside in the grain markets is limited from current levels given uncertainty regarding 2012 production. Picking a bottom is always very difficult, but we believe these markets are close. Soybeans likely have the most downside potential from current levels, given the high probability for an acreage increase from the USDA on June 29th. Many cash corn traders still believe that the old crop corn market still has a very significant bull story, given extremely strong basis levels and lack of supply. Look for wide ranges and a volatile trade today.